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Industry Leaders: Reverse Mortgage Rules Too Much

In a ""prepared statement"":http://www.aba.com/aba/documents/news/SafetySoundness61411.pdf that it submitted to the ""Senate Financial Institutions Subcommittee"":http://banking.senate.gov/public/index.cfm?Fuseaction=CommitteeInformation.Subcommittee&Subcommittee_ID=d7d38747-f226-46f4-8aaa-c06fae94bf41, the ""American Bankers Association"":http://www.aba.com/default.htm (ABA) aired concerns about a dry-up in risk in the financial markets, an increasingly serious dilemma that it blamed on Congress for trying to prevent past mistakes from occurring again.

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""In an effort to deal with the aftermath of the financial crisis, the response by Congress and the regulators has been to drive out all the risk from the system in the name of safety and soundness,"" the ""statement"":http://www.aba.com/aba/documents/news/SafetySoundness61411.pdf read. ""This has meant that good loans that could and should be made are left unfunded.

""The pendulum has swung too far in favor of tighter regulation, micro-management [sic], and second-guessing,"" it said.

The ""ABA"":http://www.aba.com/default.htm delivered the statement in response to a new loan officer compensation law, a voluminous text with multiple rules and regulations that drove up costs and lost hours for brokers and lenders trying to implement it, according to ""_Reverse Mortgage Daily_"":http://reversemortgagedaily.com/2011/07/04/for-reverse-mortgage-lenders-has-the-regulatory-pendulum-swung-too-far/.

The compensation law came under more heat last month when financial services analysis firm ""Barclays Capital"":http://www.barcap.com/ released a report condemning the new rules, which banned yield-spread premiums, threatening to drive more brokers to high-balance loans and thus more borrowers, too.

""These new guidelines are likely to further reduce"" the share of loans and restrict lender underwriting standards, said the analysts who wrote the report.

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The economics of originating and passing on the loans to lenders and acting purely as an intermediary look ""significantly worse"" under the Obama administration and federal regulatory agencies.

Industry insiders reacted to the statement.

""The pendulum has certainly swung too far in the direction of regulation in the reverse mortgage industry,"" ""_Reverse Mortgage News_"":http://reversemortgagedaily.com/2011/07/04/for-reverse-mortgage-lenders-has-the-regulatory-pendulum-swung-too-far/ reported Ken Klawans, president of ""iReverse Home Loans"":https://reverse-mortgage.theeasyloansite.com/5/?utm_source=ggl&utm_campaign=easy&utm_term=iReverse%20home%20loans&rbt=exact&utm_publisher=&utm_content=7410212115&utm_medium=paid&adg=telsrm_competitor_ireverse_us_exact&utm_adcampaign=reverse_national&gclid=CM2Ljcet66kCFRMS2godhkIqag, as saying. ""While it's important that safeguards are in place for our protected class of borrowers, throwing more rules, restrictions and papers for the senior to sign does nothing to accomplish the desired results.""

In addition to a risk-retention rule, contentious ""Consumer Financial Protection Bureau"":http://www.consumerfinance.gov/ (CFPB) is one of several new mechanisms at play under the Dodd-Frank Act. The ""ABA's"":http://www.aba.com statement stressed that the bureau may yield fallout in the financial services markets that far outweighs the good intentions that led to its creation.

""The nature and extent of rules from the [""CFPB"":http://www.consumerfinance.gov/] are unknown, but uncertainty about the potential actions creates potential litigation risk as actions taken today may conflict with the changes in rules devised"" by it, the ""ABA"":http://www.aba.com said in its ""statement"":http://www.aba.com/aba/documents/news/SafetySoundness61411.pdf.

Mark Calabria, director of financial regulation studies at the conservative-leaning ""Cato Institute"":http://www.cato.org/, said that the ""CFPB"":http://www.aba.com/aba/documents/news/SafetySoundness61411.pdf would likely create ""more bank failures rather than less"" with its far-reaching regulatory powers, which continue to expand with a slow transfer of 18 consumer financial laws from seven regulatory agencies.

Others see the Dodd-Frank Act as a positive good.

""I think that the moves to weaken the CFPB are really misguided,"" said Michael Barr, ""University of Michigan"":http://www.umich.edu/ professor, former ""Treasury Department"":http://www.treasury.gov/Pages/default.aspx assistant secretary, and a chief architect of the Dodd-Frank Act. ""I think that the consumer bureau is going to help make the market work better. That's good for consumers and investors and lenders. It will help make the markets work much better.""

Speaking to _The MReport_, ""ABA's"":http://www.aba.com EVP for mortgage markets and public policy, Bob Davis, stayed firm on the issue.

""The pendulum has swung too far. When you come out of a period of loss you want to build a capital cushion,"" Davis said. ""We're still at the pendulum up in one arc of its swing, but there has to be a balance.""

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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